JERUSALEM, July 17 (Jeffrey Heller/Reuters) - Israeli Prime Minister Benjamin Netanyahu's main political partner pulled out of his grand coalition on Tuesday, accusing him of surrendering to ultra-Orthodox Jews in a battle over military conscription.

Netanyahu will remain in office for the foreseeable future, still in control of a majority in parliament despite the decision by the centrist Kadima party to bolt the government it joined only two months ago.

But the break-up was widely seen in Israel as a serious political blow to Netanyahu, whose recruitment of Kadima leader Shaul Mofaz in May to form one of the biggest governments in the country's history had newspapers hailing him as King Bibi.

The political turmoil raised fresh speculation among some Israeli commentators about an early election ahead of a national ballot due in late 2013. But there was no immediate sign from Netanyahu that he might opt to go the polls.

Kadima, the largest party in the Knesset with 28 of its 120 seats, had joined the government with the declared aim of ending a decades-old blanket exemption of Jewish seminary students from military service.

The change was opposed by ultra-Orthodox factions that have long propped up coalition governments in Israel, landing Netanyahu in a political minefield.

Because of narrow political considerations, you chose the alliance with the (ultra-Orthodox) over an alliance with the Zionist majority, Mofaz, Israel's vice premier, wrote in his letter of resignation to Netanyahu.

RITE OF PASSAGE

Military service is a rite of passage for many Israelis, who view the army as a core element of national identity and the essential bulwark against the country's Arab and Islamic adversaries since its founding in 1948.

Jewish men and women in Israel are drafted at the age of 18 for three- and two-year stints and public pressure from the secular majority has mounted for a more equal sharing of the military burden.

But weeks of negotiations between Kadima and Netanyahu's right-wing Likud party on the language of a new conscription law ended in disagreement over issues such as how many seminary students to draft and at what age to do so.

The Supreme Court ruled in February that a temporary law that codified the exemptions was unconstitutional and set an August 1 deadline for its expiry.

I am sorry about your decision to forgo the opportunity to make a historical change, Netanyahu wrote in reply to Mofaz's letter.

After 64 years (of Israeli independence) we were very close to a real change in sharing the burden ... I explained to you that the only way to implement it would be gradually, without tearing up Israeli society, particularly in a time at which Israel is facing many significant challenges.

Defense Minister Ehud Barak said that without a new law in place, past regulations that made military service compulsory for all, except for most of Israel's Arab citizens, would go into effect and the army would decide who to enlist in accordance with its needs.

That would effectively give the military the option of not calling up the ultra-Orthodox or limiting the number of seminary student recruits.

In the early days of the Jewish state, Prime Minister David Ben-Gurion agreed to exempt about 400 pious students from military service so they could devote themselves to lifetime study of the main Jewish scriptures.

Now that number has grown to about 60,000 men supported by state handouts, occasional work and donations from family and friends.

With Kadima in his coalition, Netanyahu controlled 94 parliamentary seats. His alliance with the centrist party was portrayed at the time as an opportunity for a new push - which has yet to materialize - for a resumption of peace talks with the Palestinians, suspended since 2010 in a dispute over Jewish settlement building in the occupied West Bank.

The majority will now be scaled back to 66, a margin that was widely seen as comfortable until the conscription dispute led to moves in May for an early election in September and the surprise formation of the grand coalition that ended talk of a ballot.

For Kadima's Mofaz, the move back into opposition holds its own uncertainties after his resignation as Netanyahu's top deputy goes into effect at the end of a 48-hour cooling off period on Thursday.

Kadima's former leader, Ehud Olmert, who resigned as prime minister in 2008 to battle corruption charges, was acquitted last week of the main accusations against him, sparking talk of a political comeback. He has said he is not interested. (Additional reporting by Maayan Lubell, editing by Tim Pearce)